5 Counterintuitive Financial Tips That Work

Russell Holcombe, a certified financial planner based in Atlanta, says he's tired of constantly warning clients against making bad money choices. Part of the problem, he says, is that popular financial advice is often wrong. That's why he finds himself urging people to rethink purchasing houses that would max out their budgets, or putting so much money into retirement accounts that they're unprepared for emergencies.

"I had a certain level of exhaustion from having to protect people from a bad decision-making process," he says. Through his work with clients, he says he realized that their ability to recover from negative financial events depended more on how they had structured their lifestyle than on any investment strategy. That's why in his book, "You Should Only Have to Get Rich Once," he offers counterintuitive advice that's centered more on life decisions than stock market ones.

Holcombe offers these five under-the-radar strategies to help you avoid what he calls "financial suicide":

Buy a smaller house.

"During the housing boom of '04 and '05, you would hear people go out with real estate agents who said, 'Your income lets you buy an $800,000 house,'" Holcombe recalls. Most people would go ahead and buy a house at the highest end of what they could afford, while just a fraction would hold back and say, "We're only going to buy a house based on one income," Holcombe says. The people who made that choice ended up coming out ahead during the turbulent economy, when many people lost jobs, he adds.

Okay, save for retirement, but don't tie up so much of your savings in post-tax retirement accounts like 401(k)s that you can't weather financial storms when they hit, Holcombe advises. "The ability to survive is based on the ability to adapt," Holcombe says, and tying up money in certain types of restrictive savings accounts, such as retirement and college savings accounts, means you have less flexibility to invest in other things or pay bills.

Many people end up paying fees and penalties when they have to withdraw from retirement accounts early, Holcombe points out. So yes, save for retirement, but don't forget to prioritize shorter-term savings accounts, too. If you're an entrepreneur, you might want to consider investing in your business instead of your retirement account, he adds.

"For financial advisors, all roads lead to stocks," Holcombe says, adding that such a one-track mindset is a problem. "For the people that I know who are successful and endure financial traumas, the market is irrelevant to them. It's not the reason for their success, it's a tool," he adds. So while investing in stocks might be part of a larger financial strategy, Holcombe recommends against getting too preoccupied with investment strategy.

Instead, focus on a "perpetual income stream."

Holcombe says everyone should consider how they can build their own "perpetual income stream," which consistently pays out cash over time. A doctor might buy a medical building that generates rent, a writer might generate royalties off of a book, a retiree might invest in a dividend-paying portfolio. "Perpetual income streams are the holy grail in business, from Comcast to Netflix. Everybody is trying to move to that model because they get paid whether you tune in or not. Some people have the talent to create them and some don't," he says. "There's no one size fits all," he adds.

Holcombe urges people to avoid traditional investments that generate income, like annuities, because he says "they are super expensive and you can't change your mind."

When people try to get on top of their money, Holcombe says they often start tracking all of their expenditures, from gas to food, or their net worth. He calls such calculations "totally meaningless." Instead, he says, people should focus on the expenses that can't be changed quickly, including a mortgage or debt payments. "It shows how quickly you can adapt to a traumatic event [like a job loss]," he says. He uses the term "lifestyle cash flow" to describe the cash flow required each year to pay the bills.

As long as you're earning enough money to cover those expenses, then you can feel relatively financially secure, Holcombe says, adding, "If you're spending money on something that's not making you happy, then kill it quickly."

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